Secretarial Audit: Applicability, Process and Form MR-3

Secretarial audit is mandatory under Section 204 of the Companies Act for every listed company, and for public companies with paid-up share capital of ₹50 crore or more, or turnover of ₹250 crore or more. It must be conducted by a practising Company Secretary, who issues a report in Form MR-3, attached to the company's Board's Report.

What secretarial audit examines

• Compliance with the Companies Act and its rules
• Compliance with SEBI regulations (for listed companies) — LODR, takeover code, insider trading rules, etc.
• Compliance with FEMA, to the extent of foreign direct investment, overseas direct investment and external commercial borrowings
• Other applicable laws specific to the company's industry
• Board processes, meeting notices, minutes, and statutory registers

Who qualifies as a secretarial auditor

Only a Company Secretary in practice (holding a Certificate of Practice from ICSI) can conduct a secretarial audit — it cannot be done by a Chartered Accountant or an in-house Company Secretary who is an employee of the company.

Process and timeline

1. Board appoints a practising Company Secretary as secretarial auditor (typically at a board meeting)
2. The auditor reviews statutory records, filings, minutes and compliance documentation for the financial year
3. Any qualifications, reservations or adverse remarks are reported explicitly
4. Form MR-3 is issued and annexed to the Board's Report filed with the annual return

Does secretarial audit apply to private companies?

Only if a private company meets the paid-up capital or turnover thresholds above (as a subsidiary of a public company, for instance) — most private limited companies below these thresholds are exempt, though many choose it voluntarily for governance credibility.

Penalty for non-compliance

Failure to conduct a required secretarial audit, or qualifications in the report that go unaddressed, can attract penalties on the company and officers in default, and signal governance weaknesses to regulators and investors.

Our corporate governance team coordinates secretarial audits and addresses MR-3 qualifications proactively.